3 key challenges in decarbonizing your supply chain - and how to tackle them

3 key challenges in decarbonizing your supply chain - and how to tackle them
Perspectives
September 19, 2022
6 min
read

Have you set a target to reduce your scope 3 emissions and ‘decarbonize your supply chain’, and are unsure what to do now? Or are you just starting out and need guidance on how to work on the biggest part of your footprint - your supply chain? We’ve distilled the 3 key challenges and insights we’ve learned from helping some of the leading companies achieve their supply chain decarbonization ambitions. Let’s get into it.

Challenge 1: You cannot micromanage your suppliers

The challenge - increased complexity and lack of leverage:

You may have become an expert on the emissions from your own operations. You may have calculated your scope 1 and 2 emissions and know exactly where to prioritize to get the most decarbonization bang for your bug. Whether that will be switching to EVs on site, replacing old gas boilers or procuring renewable energy. You can easily create a decarbonization roadmap and with senior management onboard it is mostly a question of execution. This is a great approach for scope 1 and 2, but unfortunately it doesn’t work for your scope 3. As you move on to your scope 3, complexity increases. Even in an oversimplified scenario with only 10 suppliers in your supply chain, you’ll need to know the ins and outs of scope 1 and 2 emissions of 10 companies. That is 10x complexity. Now imagine a more realistic scenario of 100 suppliers or even 1000. Exponential complexity. Oh yeah, and unless you're a behemoth like Nestlé, you don’t have the leverage to micro manage your suppliers like this.

The solution - push suppliers to reduce, set targets and hold them accountable:

Instead, your responsibility is to push your suppliers to calculate emissions, set goals to reduce those emissions, and to hold them accountable to reach those reductions. You need to be able to base your procurement decisions on emissions performance, and your suppliers need to understand that they need to fulfil some minimum requirements on emissions to be eligible to work with you.

We’ll discuss how you operationalize this further in challenge 3, but before you can do that, you first need data that you can base those decisions on - and that leads us to the next challenge.

Challenge 2: Collecting emissions data from your supply chain is different (and more challenging than) collecting data from your own operations

The challenge - emissions factors don’t give you actual workable data:

When you first calculate your own scope 3 emissions, you will be using what’s known as ‘emission factors’ to multiply your spend in an industry/category with the avg. emissions for that industry/category. This helps you estimate your emissions and realize that scope 3 on avg. accounts for a whopping 92% of your total emissions. But as you’ve probably already noticed, these estimations won’t help you decarbonize your supply chain, because two suppliers delivering the same good will have exactly the same emissions. So you don’t know the actual emissions of your suppliers, and hence can’t work with your suppliers to improve, or switch to new suppliers with a lower footprint.

The solution - educate, collaborate and go only as granular as you need:

You need to collect actual emissions data from your suppliers that you can use to work towards reducing them, but how do you get that data? Welcome to the world of procurement and supplier engagement.

“This is what we hear most from our decarbonization customers: we need real emissions data from our real suppliers to be able to take action.”
Emil, responsible sourcing consultant Responsibly

The first thing you need to realize is that collecting data from your suppliers is significantly different from collecting data from your internal organization. You have less leverage, you need to educate more, and your suppliers are getting asked for this information not just by you but by every single one of their customers.

Since you’re now creating “unpaid” work for your suppliers, your goal must also be to minimize that work to have a realistic chance of getting the data now and in the future.

Because of this, we’re big advocates of collecting data from your suppliers that they can use for other customers as well, and as mentioned above, you shouldn’t get to a granularity level where you start micromanaging your suppliers.

That’s why we advise against collecting detailed activity based data from your suppliers - it puts too much work on your suppliers, you typically don’t use the extra granularity, and the data request doesn’t scale across the supplier’s other customers. Instead for SME suppliers, we recommend collecting the supplier’s company-wide emission numbers and their reduction targets on a yearly basis so you can hold them accountable. You can use the spend method to allocate their emissions to your scope 3 emissions by multiplying them with the proportion your spend makes up of their total revenue. Most importantly, you can use the data to take action and decarbonize, as the data is now supplier specific.

There are some cases where using company-wide emissions can be misleading, when it comes to large suppliers with a highly diversified product portfolio for example. Here you’ll need to go more granular and push your suppliers to provide product-specific LCA (Life-Cycle Assesment) data instead, but for the majority of companies’ spend the method described above will be sufficient.

To get the data, and to start decarbonizing, you need to operationalize supply chain decarbonization, and that means embedding it in your procurement processes.

Challenge 3: Operationalizing supply chain decarbonization means introducing emissions evaluation in your procurement processes

The challenge - embedding sustainability in the procurement process:

To reach your decarbonization targets you need to embed it in the procurement function and the operational decisions that are made day-to-day on which suppliers to allocate spend to.

This can frighten some, and a typical refute is whether you can afford to pay more for “sustainability” and how to quantify the worth. We can’t tell you that, but as a first step you need to put emissions on the scorecard when sourcing and performance managing your suppliers, even if you don’t assign it a weight and a price. This shows suppliers you take it seriously and pushes them in the right direction. It also helps you identify opportunities when other metrics like price or quality are similar. However, you need to acknowledge that your procurement colleagues are already overburdened and you need to help them understand how they can easily work with emission criteria.

The solution - equip the procurement team with accurate and actionable information:

Ideally you want to give them emissions-focused scorecards that help them understand whether an emissions number is high or low and whether a target is ambitious or not. You should be able to assign scores to different suppliers based on the raw data so your procurement colleagues don’t need to use precious time making this analysis themselves. Finally, you need to help them access this information in their day-to-day workflows - so if they use a procurement system you need to ensure that the data is accessible there.

Supply chain decarbonization is a journey. It’s not something that’s achieved in a 2 week project, and you need to hold your suppliers accountable now and in the future. You ultimately need to embed it in your processes and we hope we provided some clarity on how to do that in this article.

We can help

We specialize in supply chain sustainability, and have developed both expertise to guide you on the topic and technology to execute it at scale. Our supply chain #decarbonization module is tailored to help you overcome the challenges mentioned above. We have an advanced data engine that aggregates emissions data on your suppliers without engaging them. We apply an analytical layer on top of that to automatically create scorecards and provide you with the analytics to recalculate your #scope3 emissions based on real supplier data, and guide you to which suppliers to focus on. We also empower your suppliers to improve by giving them access to guidance and resources on how to e.g. calculate #emissions , set targets, and achieve those targets.

Written by
Thomas Buch Andersson

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